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Entertainment and Media NewsWed, 03 Jun 2020 15:11:32 +0000en-US
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3232Industry Task Force Proposes Guidelines to Restart Production in California and New Yorkhttps://www.closeupsblog.com/2020/06/industry-task-force-proposes-guidelines-to-restart-production-in-california-and-new-york/
https://www.closeupsblog.com/2020/06/industry-task-force-proposes-guidelines-to-restart-production-in-california-and-new-york/#respondWed, 03 Jun 2020 15:11:32 +0000https://www.closeupsblog.com/?p=2836Continue Reading]]>On June 1, the Industry-Wide Labor-Management Safety Committee Task Force (Task Force), composed of representatives of producers and the unions of the motion picture and television industries, submitted to the governors of California and New York a white paper proposing guidelines for the resumption of motion picture, television, and streaming production (White Paper). The White Paper presents the consensus of the Task Force regarding the circumstances under which content production can safely resume, with an emphasis on regular testing, sanitation, physical distancing, and education and training. The White Paper also addresses unique production-specific concerns, such as preventing infections from equipment that is commonly shared and not feasibly disinfected (e.g., lighting / electrical cables and certain props, costumes, accessories, wigs, and other specialty items), and special guidelines for casts that include minors or animals.

Though the guidelines set forth in the White Paper are not specifically tailored to any particular production location, they are of particular importance to production in California and New York. In both states, production was halted in late March and remains effectively prohibited as of the date of this article. However, both states have gradually begun reopening by allowing certain sectors to resume limited operations, pursuant to sector-specific guidelines, in regions that meet criteria for slowing the spread of COVID-19. Because neither of these states—the two largest film and TV production hubs in the U.S.—has adopted any guidelines for the resumption of filming or other aspects of production, the White Paper is a significant step toward the resumption of content production in the wake of the pandemic.

By contrast, Georgia—the third-largest U.S. production hub—allowed content production to resume on April 30 upon the expiration of its “shelter in place” requirements, subject to certain social distancing and sanitation rules applicable to all businesses other than critical infrastructure, live performance venues, and amusement parks. (Georgia also released non-binding best practices for content production during the COVID-19 pandemic on May 22.)

Though the White Paper provides a solid foundation for the appropriate California and New York state agencies to examine the resumption of production, it will be a while before the entertainment industry is back to business as usual. In addition to complying with any statewide guidelines, productions must comply with any applicable local directives to legally reopen. And even once they are legally reopened, productions (like any other business) must remain mindful of other federal, state, and/or local obligations that may arise in connection with reopening, for example, regarding the confidential treatment of medical information related to testing protocols or employment discrimination when selecting people to return to work. If the recommendations in the White Paper are adopted, productions will be required to designate a “COVID-19 Compliance Officer,” who will be responsible for COVID-19 safety plan oversight and enforcement and accessible to all cast and crew at all times during work hours.

We are closely monitoring the reopening process and will provide ongoing updates regarding reopening issues related to the White Paper, production insurance, government assistance, labor relations, and other matters.

]]>https://www.closeupsblog.com/2020/06/industry-task-force-proposes-guidelines-to-restart-production-in-california-and-new-york/feed/0Back to Business: Hollywood Producers Navigate the Choppy Waters of Reopening Plans and Labor Relationshttps://www.closeupsblog.com/2020/06/back-to-business-hollywood-producers-navigate-the-choppy-waters-of-reopening-plans-and-labor-relations/
https://www.closeupsblog.com/2020/06/back-to-business-hollywood-producers-navigate-the-choppy-waters-of-reopening-plans-and-labor-relations/#respondMon, 01 Jun 2020 18:52:43 +0000https://www.closeupsblog.com/?p=2832Continue Reading]]>Recently, California Governor Gavin Newsom raised some eyebrows when he announced that state government officials anticipated publishing guidelines for the reopening of Hollywood production facilities by Memorial Day. The Governor’s announcement took many in the industry by surprise, given that producers and unions continue to wrestle with the legal obligations and operational complexities involved in safely reopening film and television productions with the ever-present threat of COVID-19. Faced with this monumental task and the fluid nature of the pandemic, most production houses do not anticipate any return to work before July 1. Regardless of the precise timing of Hollywood’s return to work, the various union collective bargaining agreements (Basic Agreements) are clear that producers and unions will share responsibility for ensuring a safe and healthy workplace for industry employees. Given the outsized roles that the Hollywood Guilds play in shaping industry employment policy, strategic labor relations will be key to the success or failure of producers’ reopening plans.

As a general matter, employers are not obligated to bargain over the terms and conditions of employment that are already covered by a collective bargaining agreement (CBA). Alternatively, if a union demands to negotiate a term of employment that is not covered by a CBA, a duty to bargain may arise. All of the Basic Agreements cover the subject of safety in the workplace to some extent, but the details of a producer’s reopening plans in response to this unprecedented health crisis ultimately will determine whether a union has the power to keep production closed until a negotiated deal is reached for reopening. Traditionally, labor relations in Hollywood have been more collaborative than adversarial because of the unusual strength and visibility the Guilds possess. It is often in a producer’s best interests to meet with the union to discuss labor relation matters regardless of whether a duty to bargain exists, in an effort to win buy-in from the union. Successful labor relations keep productions on time and avoid the potential for costly and disruptive legal disputes. Given that the DGA, IATSE, and SAG-AFTRA have publicly announced that they are coordinating their pandemic back-to-work strategies, it is likely that planning for reopening will involve some amount of negotiation between the producers and the unions.

Perhaps with this in mind, the newly negotiated DGA contract contains an exhibit consolidating and detailing employer and union member safety responsibilities on set. The new DGA contract set the pattern for negotiations to follow with the other unions, so we may see similar workplace safety provisions in subsequent contracts (the WGA is in negotiations now). Directors occupy the unique (and often awkward) position of being union members and quasi-management employees who bear a certain level of responsibility for ensuring safety on a shoot. Exhibit 2 of the 2020 Memorandum of Agreement for the DGA Basic Agreement memorializes this shared responsibility in detail. It also provides the following protection for employees: “No Employee shall be discharged or otherwise disciplined for refusing in good faith to work on a job that exposes him or her to a clear and present danger to life or limb.” The IATSE’s Basic Hollywood Agreement contains a similar provision protecting employees’ rights to refuse to work based on a reasonable, good faith fear of danger to their lives. These provisions—which generally track the Occupational Safety and Health Administration’s guidance protecting employees from exposure to dangerous job conditions—have the potential to take on particular importance for union members during reopening. Although similar protections already exist by statute, the inclusion of these provisions in labor contracts provides a potential tool, short of a strike or lawsuit, for union members to voice complaints or refuse to work if they deem reopening plans to be insufficiently protective of their health.

Given the shared interests of employers and employees in a workplace safe from COVID-19, the likelihood of a strike over reopening plans is low. The DGA, WGA, SAG-AFTRA, and IATSE Basic Agreements all contain “No Strike” provisions prohibiting union members from striking if a dispute arises over the terms and conditions of employment. Many of the contracts require the unions to use best efforts in good faith to require their members to work in the event of any wildcat action (unauthorized strike) by a subset of union members. Some of the contracts further prohibit “sympathy” strikes in support of another striking union. Conversely, in the event of a strike, certain provisions of the Basic Agreements inoculate union members from certain consequences and liabilities that would otherwise flow from the work stoppage. For example, the DGA contract prohibits employers from disciplining DGA members who refuse to cross a picket line duly authorized by the Guild. The WGA agreement suspends members’ liability for breach of contract during a strike as long as the member honors his or her contract (or signs a new agreement at the producer’s request) after the work stoppage concludes. These protections are not unfettered. A strike by WGA members empowers the production company to suspend its contractual obligations to writers for the duration of a strike and allows the employer to cancel writer contracts in the event of a strike. Given the fierce competition for industry jobs (especially in this fragile economic moment) and the thoughtful planning under way by all sides on reopening, the likelihood of an industry-wide strike is low despite these relatively union-friendly strike provisions in the Basic Agreements.

Producers and unions share the goal of shielding the workplace from COVID-19 and maintaining healthy employees in this pandemic. Any pandemic safety plan must address conditions at reopening but also must evolve over time to account for new developments in virus response and a potential resurgence of the virus through the end of the year and into 2021. Producers who successfully win buy-in and genuine cooperation from unions will undoubtedly chart a smoother course through these choppy waters. Shared interests in Hollywood labor relations traditionally lead to deals, not strikes, but these are unprecedented times and sound labor relations will be key to success.

]]>https://www.closeupsblog.com/2020/06/back-to-business-hollywood-producers-navigate-the-choppy-waters-of-reopening-plans-and-labor-relations/feed/0Working on a Production in Europe? Take Note of New Taxpayer-Friendly Residency Approaches in Light of the COVID-19 Crisishttps://www.closeupsblog.com/2020/05/working-on-a-production-in-europe-take-note-of-new-taxpayer-friendly-residency-approaches-in-light-of-the-covid-19-crisis/
https://www.closeupsblog.com/2020/05/working-on-a-production-in-europe-take-note-of-new-taxpayer-friendly-residency-approaches-in-light-of-the-covid-19-crisis/#respondThu, 28 May 2020 19:13:45 +0000https://www.closeupsblog.com/?p=2827Continue Reading]]>Employers of U.S. residents who are remaining in Europe while projects are shut down because of the COVID-19 pandemic might benefit from a new taxpayer-friendly approach. The new protocol forgives days spent abroad because of COVID-19 travel restrictions, as part of a foreign-country corporate residency analysis.

On March 23, 2020, the Irish Revenue Commissioners (Irish Revenue) issued Revenue eBrief No. 46/20, which announced Irish Revenue will adopt a taxpayer-friendly approach to corporate residency determinations for companies whose employees, directors, service providers, and/or agents are unable to travel as a result of recent government-imposed travel restrictions. This guidance came at the same time as similar announcements by the Organization for Economic Cooperation and Development (OECD) and several other countries. In particular, on May 20, 2020, and May 25, 2020, France and Germany, respectively, announced bilateral agreements with neighboring countries to ignore the presence of employees who must work outside of their country of employment due to government-imposed travel restrictions. Taken together, these policies suggest a universal willingness among international taxing authorities to quickly respond to the COVID-19 crisis and accommodate taxpayers as they navigate the evolving commercial realities of their businesses.

Determining a Company’s Country of Tax Residence Under Irish Law

In general, corporate tax residency under Irish law is determined based on (i) place of incorporation (for companies incorporated in Ireland on or after January 1, 2105), and (ii) place of central management and control. The primary factors utilized in determining a company’s place of effective management include the country where board meetings are held and the location of key directors and executives. If an Irish resident company is also treated as a tax resident in a different country under the provisions of a double tax treaty between Ireland and that other country, the applicable treaty tie-breaker residency rules will control.

A company that is tax resident in a country is generally subject to corporate income tax in that country with respect to its worldwide income. Companies are often incentivized to be treated as Irish tax residents due to Ireland’s lower corporate income tax rate on active business income (i.e., 12.5% on qualified trading income). Accordingly, certain companies may be concerned that their place of effective management has been involuntarily shifted away from Ireland as a result of employees and key members of management being unable to travel to Ireland for board meetings and other board activities due to recent COVID-19 travel restrictions, which could adversely impact their global effective tax rates.

Irish Corporate Tax Residency in the Era of COVID-19

In response to the current unprecedented situation facing taxpayers, Irish Revenue released a bulletin detailing Ireland’s approach to corporate tax residency determinations in light of the COVID-19 crisis. The guidance states that where an employee, director, service provider, or agent is present in Ireland as a result from COVID-19 related travel restrictions, Irish Revenue will be prepared to disregard such presence for corporate tax purposes. Additionally, where an employee, director, service provider or agent is present outside of Ireland as a result of COVID-19 related travel restrictions, Irish Revenue will be prepared to disregard such presence for corporate tax purposes.

This guidance is good news for companies whose employees are stranded or otherwise unable to travel to Ireland for board meetings or other key management decisions. Those businesses with Irish tax residency concerns should maintain records supporting a bona fide relevant presence within or outside of Ireland, as appropriate, to provide to Irish Revenue as evidence that such presence resulted from travel restrictions. However, Ireland has yet to announce any bilateral agreements to disregard the presence of workers employed by an Irish company who must work outside of Ireland as a result of the COVID-19 crisis. Taxpayers should continue to monitor guidance from other relevant countries regarding corporate residency determinations.

How Can Venable Help?

Travel restrictions related to the COVID-19 crisis are expected to significantly impact the operating models and tax footprints of many international taxpayers. Venable’s International Tax team can help clients understand the complex rules related to corporate tax residency and develop tax planning strategies to proactively address the changing commercial landscape.

]]>https://www.closeupsblog.com/2020/05/working-on-a-production-in-europe-take-note-of-new-taxpayer-friendly-residency-approaches-in-light-of-the-covid-19-crisis/feed/0TV Star Arrested for Misuse of Stimulus Fundshttps://www.closeupsblog.com/2020/05/tv-star-arrested-for-misuse-of-stimulus-funds/
https://www.closeupsblog.com/2020/05/tv-star-arrested-for-misuse-of-stimulus-funds/#respondFri, 15 May 2020 18:37:14 +0000https://www.closeupsblog.com/?p=2797Continue Reading]]>On May 13, 2020, reality TV star Maurice “Mo” Fayne was arrested and charged with federal bank fraud by the U.S. Department of Justice in connection with his alleged misuse of loan proceeds obtained through the Paycheck Protection Program (PPP). Fayne submitted his PPP application in April, on which he claimed his company, Flame Trucking, had 107 employees and a monthly payroll of about $1.5 million. Fayne obtained over $2 million in funding from the program under the pretense of using the funds to support his trucking company. Instead, Fayne allegedly spent the money on $85,000 in jewelry, including a Rolex Presidential watch, a Rolls-Royce Wraith, and $40,000 in child support.

The PPP, enacted as part of the historic $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, was intended to help small and midsize businesses retain employees and otherwise keep the lights on during the economic downturn caused by the COVID-19 pandemic. To accomplish this goal, the PPP provides low-interest loans to eligible business; furthermore, PPP loans are eligible for tax-free loan forgiveness if they are used for certain qualifying expenses. Businesses applying for a PPP loan must certify that the funds will be used to retain workers and maintain payroll, and to make mortgage interest payments, lease payments, and utility payments. Businesses must also acknowledge that knowingly using the funds for unauthorized purposes may result in legal liability, including fraud charges.

Fayne’s attorney cited the confusing and constantly changing laws surrounding the PPP as justification for Fayne’s alleged misuse of the loan proceeds. It is true that Congress pushed the PPP out very quickly and left the Department of Treasury and the Small Business Administration to fill in the gaps. Consequently, Treasury has continuously published additional guidance in an effort to resolve the PPP’s many lingering ambiguities. Additional guidance for the PPP was published as recently as May 14 (and we expect more will follow after this article is posted). The constantly shifting goalposts have been a headache for both lenders and borrowers looking to remain compliant with the PPP’s various requirements.

The confusing regulatory landscape and shifting requirements may have contributed to many businesses returning their PPP loans, including Shake Shack, Ruth’s Hospitality Group, and the Los Angeles Lakers. Motivations for returning the loans are varied; in addition to avoiding the scrutiny of regulators, some businesses may find that they no longer qualify for loan forgiveness as a result of new guidance and may instead opt for the Employee Retention Credit, which is not available to any businesses that receive a PPP loan. Borrowers that have already received PPP funds may return the funds by May 18 and avoid further scrutiny or other consequences (although this deadline has been extended twice already and is subject to change).

While misuse of funds in some cases may rise to the level of fraud, inadvertent missteps could easily happen with continuous regulatory flux. While staying abreast of PPP compliance is important for all businesses during these turbulent times, it is especially true for high-profile clients who must maintain their image in the Hollywood spotlight and stay away from Department of Justice and media scrutiny. Venable stands ready to assist and counsel businesses on complying with the PPP.

]]>https://www.closeupsblog.com/2020/05/tv-star-arrested-for-misuse-of-stimulus-funds/feed/0Finding the Silver Lining: Estate Planning Opportunities in a Low Interest Rate Environmenthttps://www.closeupsblog.com/2020/05/finding-the-silver-lining-estate-planning-opportunities-in-a-low-interest-rate-environment/
https://www.closeupsblog.com/2020/05/finding-the-silver-lining-estate-planning-opportunities-in-a-low-interest-rate-environment/#respondThu, 14 May 2020 18:55:06 +0000https://www.closeupsblog.com/?p=2784Continue Reading]]>With much of the entertainment industry currently at a standstill as a result of rampant production shutdowns, now may be a good time for those who are finding themselves idle to use this extra time to take stock of their financial situation and plan for the future. Economic factors, such as the current depressed financial markets and historically low interest rates, have combined to impact and drive a variety of estate planning techniques. While the current uncertain environment may – understandably – cause many to hesitate to engage in a substantial family gifting program, these economic conditions present a unique opportunity for families to pass a significant amount of wealth to younger generations with minimal transfer tax exposure. We recommend contacting your Venable Wealth Planning counsel to discuss the techniques that may provide the most viable opportunity for your particular circumstances.

This post provides a high-level discussion of those estate planning techniques that present the greatest potential for an upside when implemented during a state of declining financial markets combined with historically low interest rates.

As a general reminder, in 2020, each individual has a combined federal estate and gift tax exemption of $11,580,000, and each married couple has a combined exemption of $23,160,000. Subject to annual inflation adjustments, this exemption will remain in place through 2025, after which it will be reduced to approximately one-half of its value. Of course, the 2020 elections and mounting federal deficits may result in an earlier and possibly more dramatic reduction in the exemption before that date.

The Applicable Federal Rate and the Section 7520 Rate

Each month, the Internal Revenue Service publishes certain market-based interest rates. These rates include the “applicable federal rates” (AFRs) and the “Section 7520” rate.

For many estate planning techniques, the AFR for any given month is the lowest amount of interest that may be charged between related parties in a loan transaction without triggering imputed income or a gift. A different AFR applies depending on the term of the loan, with the short-term AFR applying to loan terms shorter than three years, the mid-term AFR applying to loan terms three years or longer but less than nine years, and the long-term AFR applying to loan terms that are nine years or longer.

The Section 7520 rate is the rate used to calculate annuity payments and the value of life estates and remainder interests for certain estate planning techniques, such as Grantor Retained Annuity Trusts (GRATs) or Charitable Lead Trusts (CLTs), discussed below.

The May 2020 rates, announced in Rev. Rul. 2020-11, represent historic lows, with the Section 7520 rate at 0.8%, and the long-term, mid-term, and short-term AFRs set at 1.15%, 0.58%, and 0.25%, respectively.

Overview of Estate Planning Opportunities

Grantor Retained Annuity Trusts

How It Works. A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust to which the creator of the GRAT (the Grantor) transfers assets and retains the right to receive fixed annuity payments from the trust for a specified number of years. After the GRAT makes the required annuity payments for the predetermined term of years, any property remaining in the GRAT passes to the designated beneficiaries (or to trusts for their benefit) free of federal estate and gift tax.

Tax and Non-Tax Considerations

A GRAT can be a highly effective wealth transfer option in a low interest rate environment because of the greater potential for the GRAT’s assets to outperform the Section 7520 rate (also commonly known as the “hurdle rate”) in effect in the month the trust was created. Thus, to the extent the assets transferred to the GRAT – e.g., marketable securities or interests in commercial real estate or a closely held business – reflect current depressed values and would generate an investment return in excess of the current GRAT hurdle rate (0.8% in May 2020), the larger the potential tax-free gift to the remainder beneficiaries.

The creation of a GRAT constitutes a current taxable gift by the Grantor to the remainder beneficiaries equal to the excess of the initial value of the contributed assets over the present value of the annuity payments to the Grantor discounted by the Section 7520 rate. The duration of the GRAT and the percentage annuity retained by the Grantor can be set so that the present value of the annuity payments retained by the Grantor equals the value of the assets contributed to the GRAT, with the result that the remainder interest (and therefore the gift) has a value of zero. The Grantor of such a “zeroed-out” GRAT makes no taxable gift and uses no gift tax exemption. So if the GRAT assets do not appreciate beyond the 7520 hurdle rate, the Grantor has not used any gift tax exemption, and the transaction is a wash. In some circumstances, it is preferable to design a GRAT so that the present value of the remainder interest of the GRAT at the creation is small (but not equal to zero), in order for the Grantor to report the GRAT contribution on a federal gift tax return (Form 709). If properly reported, the statute of limitations will begin running and, thus, limit the period of time that the IRS has to audit the GRAT transaction.

Another advantage of a GRAT is that during the annuity period it is considered a “grantor trust” as to the Grantor. This means that the Grantor is considered the owner of the GRAT for income tax purposes and is taxed on all of the income. Payment of the income and capital gains taxes by the Grantor is, in effect, a further tax-free gift to the remainder beneficiaries, since the assets can continue to grow during the annuity term without reduction for such income and capital gains tax payments.

The duration of the GRAT annuity period retained by the Grantor is a very important consideration. If the Grantor survives the annuity term, the property remaining in the GRAT will pass to the remainder beneficiaries, outright or in further trust, without the imposition of gift or estate tax (although there may be generation-skipping transfer tax consequences, depending on the relation of the remainder beneficiaries to the Grantor at the time of the distribution). However, if the Grantor dies prior to the expiration of the annuity term, a portion or all of the GRAT assets will be included in the Grantor’s estate for estate tax purposes. Therefore, the longer the annuity term, the greater the risk that the Grantor may die during that period, resulting in estate tax liability.

Generally, there are two philosophies to consider when determining the appropriate annuity term for the GRAT. First, in order to tighten the exposure during volatile markets and limit the mortality risk of the Grantor passing away during the GRAT term, it may be appropriate to use a shorter-term duration for the GRAT, such as two or three years. Alternatively, and particularly in historically low interest rate environments, longer-term GRATs, such as seven-year or ten-year GRATs, may be preferable, since clients are able to lock in the low interest rates. Furthermore, where GRATs perform better than anticipated during the initial years of the GRAT term, the Grantor may choose to lock in the significant asset appreciation by purchasing the appreciated assets from the GRAT in order hedge against losing those gains in later years. Another estate planning tool is to engage in “rolling” GRATs. Under this method, when the Grantor receives an annuity payment from one GRAT, the Grantor immediately uses that payment to fund a new GRAT.

Generally, the investment return on the assets contributed to a GRAT in the early years greatly impacts the GRAT’s overall performance; therefore, it is important for clients to consult with their advisors regarding (1) whether there are assets that are suitable for use in a GRAT, (2) the right duration for the annuity period of a GRAT, and (3) the best investment strategies for the assets that are held in the GRAT. GRATs require revaluation of the trust property each year, so marketable securities are well-suited to being used in a GRAT transaction.

Sales to Irrevocable Grantor Trust

How It Works. A sale of assets to an “Irrevocable Grantor Trust” (IGT) can be another attractive tool when interest rates are low. Contributions to an IGT are completed gifts for gift and estate tax purposes, but the IGT’s assets are treated as owned by the Grantor for income tax purposes. Therefore, the Grantor can sell assets that he or she owns to the trust without recognizing any capital gains, because the seller and the trust are considered one and the same for income tax purposes.

In a typical sale to an IGT, the Grantor sells an asset to the trust in exchange for a promissory note with interest calculated at the applicable AFR for the term of the note. This transaction is an “estate freeze” in the sense that the Grantor now owns a promissory note having a value equal to the fair market value of the assets sold to the trust; however, the assets in the trust and any future appreciation on such assets are removed from the Grantor’s estate for estate and gift tax purposes. The Grantor pays the income tax generated on the trust assets, which is effectively an additional tax-free gift to the trust.

Tax and Non-Tax Considerations

The Grantor must be willing to pay the taxes on all income generated by the assets in the trust, including capital gains on the subsequent sale of trust assets by the Trustee.

One downside of the sale is that the IGT’s income tax basis in the purchased assets will be the Grantor’s basis prior to the sale. If the Grantor chooses to “toggle off” grantor trust status during his or her lifetime, the Grantor may recognize gain if the trust’s liabilities exceed the Grantor’s basis in the assets. There is some ambiguity as to the income tax consequences at the Grantor’s death if the Grantor dies with the note outstanding, including recognition of gain and by whom.

The assets should be appraised as of the date of the sale to establish the sale price, which appraisal may be costly if the Grantor is transferring closely held business interests or other hard-to-value assets. Although the transaction is not a gift, it may be prudent to file a gift tax return for the year of the sale to report the transaction.

If the Grantor is creating a new IGT to purchase assets, it is recommended that the Grantor make a gift to the IGT prior to the sale, so that the trust has sufficient assets to serve as security for the promissory note. This gift will use the Grantor’s gift tax exemption, if available, or will incur gift tax if the Grantor does not have any available exemption at the time of such a “seed” gift.

The Grantor should also consider his or her cash flow needs prior to engaging in this type of transaction. This transaction is a completed transfer for estate and gift tax purposes, so while the Grantor receives the payments due on the note, he or she no longer has access to the assets sold to the IGT. In some circumstances, a Grantor may include his or her spouse as a potential beneficiary of the IGT in order to retain the ability to have indirect access to the assets in the IGT; however, such access would terminate on divorce or the death of the spouse.

Intra-Family Loans

A simple but effective technique in a low interest rate environment is an intra-family loan. This is particularly ideal for older generations who want to assist younger generations through either a direct loan of cash or a loan to a trust for such family member’s benefit.

Making New Loans. Intra-family lending allows an individual to assist family members without making a current gift. Such loans can benefit family members who may have difficulty obtaining traditional bank loans or finding such favorable rates. They can allow the “family lender” to serve as the bank and enable a child or grandchild to purchase a home, acquire a property, or fund a new or existing business.

In order to avoid having any part or all of an intra-family loan considered a gift for tax purposes, the loan must be adequately documented and secured, and must bear an interest rate greater than or equal to the applicable monthly AFR specified for the term of the loan. The family member providing the loan will report income on the interest received from the borrower, but as long as the loan recipient is able to invest the borrowed funds and generate an investment return greater than the minimum AFR interest rate, the loan will be successful as a wealth transfer technique. The terms of the loan agreement can be structured in many ways, including as an interest-only loan with a balloon payment of principal on maturity.

Alternatively, the loan can be made to an irrevocable trust for the benefit of family members, rather than directly to individual family members. Structured this way, to the extent the loan proceeds produce a rate of return in excess of the interest rate on the loan, such excess is a tax-free transfer to the trust. In addition, if the trust is structured as a so-called “grantor trust” for income tax purposes, the interest payments on the loan will not be taxable to the Grantor, and the Grantor can pay the tax on all income and gains generated by the trust assets, allowing the trust to grow without reduction for income tax liability.

Refinancing of Promissory Notes. If there are current outstanding loans that have an interest rate higher than the current AFR rates, such as a mortgage or an existing loan to a child or grandchild, it may be beneficial to refinance those existing loans now to lock in the current lower AFR rates.

Charitable Lead Trusts

How It Works. A Charitable Lead Trust (CLT) has a structure similar to that of the GRAT, except that the income payments are made to one or more designated charitable organizations rather than to the Grantor. With a CLT, the Grantor transfers assets to an irrevocable trust, and the trust makes payments to one or more qualifying charitable organizations – either public charities or private foundations – for a fixed number of years or for the life or lives of designated individuals, or a combination of the two (the “charitable term”).

At the end of the charitable term, the assets remaining in the CLT must be distributed to one or more non-charitable beneficiaries, typically the Grantor’s lineal descendants (or to trusts for their benefit).

Tax and Non-Tax Considerations

A CLT is a beneficial structure for a Grantor with philanthropic goals and a mission of benefiting charity during a significant time of need, such as the ongoing COVID-19 pandemic.

Similar to a GRAT, the creation of a CLT constitutes a taxable gift by the Grantor to the remainder beneficiaries that is equal to the initial value of the contributed assets, reduced by the present value of the annuity or unitrust payments to be made to charity, discounted at the Section 7520 rate. Thus, as discussed above, a CLT can be structured to “zero out” at the end of the charitable term, resulting in little or no gift tax. At the termination of the charitable term of the CLT, any appreciation of the property held in the CLT in excess of the Section 7520 rate is passed on to the remainder beneficiaries of the CLT free of federal gift and estate taxes. Property contributed to a CLT is assumed to grow at a rate equal to the IRS hurdle rate in effect at the time of the transfer. Therefore, a CLT, like the GRAT, works best in a low interest rate environment, since any investment performance in excess of the hurdle rate passes free of estate and gift tax to the designated family members (or trusts for their benefit) at the end of the charitable term of the CLT.

Using a CLT to make annuity or unitrust distributions to charities allows the charitable recipient(s) to receive benefits over an extended duration of time, as opposed to a lump sum contribution outside of the CLT structure.

Furthermore, if a CLT is structured to qualify as a “grantor trust,” then the Grantor would also receive a charitable income tax deduction (subject to applicable deduction limitations) based on the present value of the CLT’s required annuity or unitrust distributions to charity in the year the CLT is created and funded. Alternatively, if a CLT is structured as a “non-grantor trust,” the Grantor will not be entitled to a charitable income tax deduction on creation of the CLT; however, the CLT may claim an unlimited charitable income tax deduction for its annual distributions to charity.

Conclusion

The current low interest rate environment, combined with depressed asset values, provide a rare opportunity to find a silver lining in today’s pandemic. While the notion that the “devil is in the details” is as true in sophisticated tax planning as anything else, a review of your assets may highlight opportunities to capitalize on one or more of the above techniques before the financial markets rebound and interest rates increase.

Venable’s entertainment and wealth planning attorneys coordinate together to implement these strategies for clients. For questions or for further discussions on any of these strategies, please feel free to reach out to your wealth planning counsel at Venable.

]]>https://www.closeupsblog.com/2020/05/finding-the-silver-lining-estate-planning-opportunities-in-a-low-interest-rate-environment/feed/0No Deductions (Yet) for Business Expenses Paid with Paycheck Protection Loanshttps://www.closeupsblog.com/2020/05/no-deductions-yet-for-business-expenses-paid-with-paycheck-protection-loans/
https://www.closeupsblog.com/2020/05/no-deductions-yet-for-business-expenses-paid-with-paycheck-protection-loans/#respondThu, 07 May 2020 16:12:19 +0000https://www.closeupsblog.com/?p=2777Continue Reading]]>For many entertainment businesses, the recent congressional stimulus has proved to be a smash hit. The IRS, however, is a tough critic and is looking to claw back some of that money by disallowing deductions associated with such stimulus funds. On April 30, 2020, the IRS released Notice 2020-32 (the Notice), which provides some clarity regarding the tax treatment of loans received pursuant to the Paycheck Protection Program (PPP). Specifically, the Notice clarifies that any expenses paid with proceeds from forgiven PPP loans are not deductible for federal tax purposes. In an earlier post, we raised the question of whether such a deduction would be allowed; now the IRS has answered, but it may not get the last word on this issue.

As background, the PPP was enacted to provide loans to small and midsize businesses to help them stay afloat during the COVID-19 pandemic. One of the PPP’s main features is loan forgiveness, through which businesses may be forgiven from repaying up to the full principal and interest amount of a PPP loan if the loan proceeds are used to pay for payroll costs, mortgage interest, rent, or utilities incurred over an eight-week period beginning on the date of receipt of a PPP loan. Significantly, any loans forgiven in this manner are excluded from taxable income.[1] Until now, however, it had been an open question whether any of the above expenses paid with such forgiven loans would be deductible for tax purposes; the IRS has taken the position that they are not.

The primary authority bolstering the IRS’s decision is Internal Revenue Code Section 265 (Section 265). Section 265 generally disallows any deductions for otherwise tax-deductible expenses where such expenses are paid using tax-exempt income. The economic rationale behind Section 265 is that allowing such deductions would effectively let taxpayers “double dip” on tax benefits in that taxpayers would (i) receive tax-free money and (ii) use such tax-free money to generate additional tax savings via a deduction. As applied here, the IRS is concerned that businesses receiving PPP loan forgiveness would be double dipping by receiving tax-free income in the amount of the forgiven loan and, on top of that, receiving a tax deduction for the qualifying expenses listed above that are paid using such tax-free income.

Currently, there is bipartisan support for a legislative override to the Notice. Detractors of the Notice argue that disallowing deductions runs contrary to the PPP’s intent of ensuring that businesses can keep the lights on during these uncertain times. For example, Senate Finance Committee Chair Chuck Grassley (R-Iowa) argued the IRS’s decision is contrary to the PPP’s intent of helping small businesses maintain liquidity. Furthermore, House Ways and Means Committee Chair Richard E. Neal (D-Mass.), through a representative, suggested a legislative fix might be in the works. With the PPP now in full swing and millions of businesses looking for some finality on this issue, we may see a legislative fix soon.

It remains to be seen whether legislators will override the Notice or whether the IRS will have the last word. Venable will continue to monitor and provide updates.

[1] Normally, debt that is forgiven gives rise to “cancellation of indebtedness” income for tax purposes, because the forgiveness of the debt is considered an economic windfall to the taxpayer.

]]>https://www.closeupsblog.com/2020/05/no-deductions-yet-for-business-expenses-paid-with-paycheck-protection-loans/feed/0Tax Impact of the Paycheck Protection Programhttps://www.closeupsblog.com/2020/05/tax-impact-of-the-paycheck-protection-program/
https://www.closeupsblog.com/2020/05/tax-impact-of-the-paycheck-protection-program/#respondThu, 07 May 2020 16:10:27 +0000https://www.closeupsblog.com/?p=2782Continue Reading]]>The Coronavirus Aid, Relief and Economic Security Act (the CARES Act) created the Paycheck Protection Program (PPP), pursuant to which certain taxpayers are eligible to obtain low-interest loans to enable continued operations during the coronavirus pandemic. If a taxpayer spends the PPP loan on certain enumerated expenses, including, among other things, payroll costs and rent, all or a substantial portion of the PPP loan will be forgiven. Participation in the PPP, however, has some critical tax impacts that should be considered. Below is a summary of some of such tax impacts:

With respect to taxpayers that receive a PPP loan:

A taxpayer that receives a PPP loan is ineligible to claim the employee retention credit, which is a refundable payroll tax credit also established by the CARES Act.

With respect to taxpayers that have a PPP loan forgiven:

In Notice 2020-32, the IRS announced that no tax deductions will be allowed for expenses that are funded by PPP loans that are later forgiven. As discussed above, forgiveness is available only if the taxpayer spends the PPP funds on certain enumerated expenses: payroll costs, mortgage interest, rent, and utilities. To obtain forgiveness of 100% of the loan, at least 75% of the PPP funds must be spent on payroll costs; the remaining 25% can be spent on the other enumerated expenses. (Note that to qualify for forgiveness the taxpayer also must satisfy certain employee retention standards.) Generally, these items are all deductible expenses. Under the IRS guidance, if a taxpayer uses PPP funds for these expenses and the taxpayer’s PPP loan is later forgiven, the taxpayer is not eligible to deduct any such expenses.

The IRS is taking the position that the PPP funds essentially constitute income that is exempt from tax. Section 265(a)(1) of the Internal Revenue Code provides that no deduction is allowed to a taxpayer for any amount otherwise allowable as a deduction if such deduction is allocable to tax-exempt income.

Many members of Congress, including Senate Finance Committee Chair Chuck Grassley, have publicly stated that the IRS’s position in Notice 2020-32 is contrary to the legislative intent of the PPP. In addition, a number of professional organizations, such as the AICPA, have issued statements requesting that Notice 2020-32 be rescinded or overruled by legislative action. Furthermore, many practitioners have argued that Notice 2020-32 is inconsistent with the Internal Revenue Code and the CARES Act. As a result, the position set forth in Notice 2020-32 may be reversed by legislative action, further IRS guidance, or a court ruling.

The amount of the forgiven loan is not considered cancellation of indebtedness income that is subject to tax. Accordingly, forgiveness of the loan should not result in any negative federal income tax consequences (other than the disallowed deductions discussed above).

Once a taxpayer has a PPP loan forgiven, the taxpayer cannot defer any subsequent payments of payroll taxes. Generally, taxpayers are eligible to defer until December 31, 2021 50% of payroll taxes with respect to social security taxes and FICA taxes attributable to the period March 27, 2020 – December 31, 2020, the remaining 50% can be deferred until December 31, 2022. Deferral ceases if and when the taxpayer’s PPP loan is forgiven.

We are continuing to monitor legislative actions and IRS guidance for any additional updates that address the tax impact of the PPP, including in particular with respect to the deductibility of expenses funded by PPP loans that are later forgiven. So stay tuned!

]]>https://www.closeupsblog.com/2020/05/tax-impact-of-the-paycheck-protection-program/feed/0Take Two for an All-But-Forgotten Disaster Relief Provision of the Tax Codehttps://www.closeupsblog.com/2020/04/take-two-for-an-all-but-forgotten-disaster-relief-provision-of-the-tax-code/
https://www.closeupsblog.com/2020/04/take-two-for-an-all-but-forgotten-disaster-relief-provision-of-the-tax-code/#respondTue, 21 Apr 2020 18:59:18 +0000https://www.closeupsblog.com/?p=2759Continue Reading]]>As the entertainment industry continues to adjust to a new normal, a largely forgotten provision of the Internal Revenue Code may provide welcome relief to both entertainment businesses and their employees during these uncertain times. The provision would allow individuals to receive tax-free payments from their employers while still giving employers the benefit of a deduction for such payments. The tax relief in question hearkens back to an earlier national crisis: following the September 11 terrorist attacks, Congress passed the Victims of Terrorism Tax Relief Act of 2001, which was intended to provide federal tax relief to victims of national disasters. Among the tax provisions to stem from this legislation was Internal Revenue Code Section 139 (Section 139).

Section 139 permits individuals to exclude from gross income for federal income tax purposes payments from any source (including an employer) that are qualified disaster relief payments. Qualified disaster relief payments include, among other things, payments and reimbursements for reasonable and necessary medical, personal, family, living, or funeral expenses that are incurred by an individual as a result of a qualified disaster[1] and not otherwise compensated (e.g., by insurance). Significantly, employers are able to deduct such payments for federal income tax purposes. Section 139 payments are also not subject to any federal withholding obligations and, therefore, do not need to be reported on a Form W-2 or 1099.

The disruption created by COVID-19 has given rise to a number of expenses that may fall within the scope of Section 139. Possible examples of such expenses include medical expenses for COVID-19 treatment that are not covered by medical insurance (including over-the-counter medication), dependent care expenses (including remote learning expenses for children), and home office expenses incurred as a result of implementing a work-from-home setup. It should be noted, however, that payments in the nature of a wage replacement will not qualify under Section 139 and will thus remain taxable. Further, as noted above, payments under Section 139 must be reasonable and necessary to qualify for the gross income exclusion; nonessential, luxury, or decorative items or services will not qualify. Accordingly, while not statutorily required, employers would be prudent to implement a written policy outlining the parameters of their Section 139 programs. Additionally, while the statute does not require record keeping, it is still recommended that employers keep records with supporting documentation for any payments or reimbursements made to workers in accordance with a Section 139 program in order to bolster the position that such payment or reimbursements were within the “reasonable and necessary” parameters of the statute.

Many entertainment businesses, including production companies and loan-outs, may be able to make payments or reimbursements that qualify for Section 139 treatment as long as such payments are (i) reasonable and necessary, (ii) related to the COVID-19 pandemic, and (iii) not otherwise compensated by insurance or otherwise. One example might be a production company whose workers have largely made the transition to working from home as a result of quarantine orders. If the production company opts to reimburse its workers for any expenses incurred in setting up a home office, such reimbursement may fall within Section 139 and therefore be tax-free to the workers and deductible by the production company. Alternatively, in lieu of reimbursements, the production company could receive the same tax treatment by implementing a Section 139 program and paying its workers an amount that is reasonably calculated to cover work-from-home expenses. The above benefits may also be available to shareholder-employees of a loan-out company.

The above examples are illustrative and should not be relied on as guidance or legal advice. Whether certain expenses qualify for tax-free treatment under Section 139 is determined on a case-by-case basis and is based on the facts and circumstances of the payment. Venable stands ready to advise any clients who wish to include Section 139 in their tax planning.

[1] The IRS confirmed that COVID-19 is a qualifying disaster for purposes of Section 139 in a FAQ published March 31, 2020.

]]>https://www.closeupsblog.com/2020/04/take-two-for-an-all-but-forgotten-disaster-relief-provision-of-the-tax-code/feed/0Not Entitled to a Paycheck Protection Program Loan? Payroll Tax Relief for the Entertainment Industry Is on the Way Under the CARES Acthttps://www.closeupsblog.com/2020/04/not-entitled-to-a-paycheck-protection-program-loan-payroll-tax-relief-for-the-entertainment-industry-is-on-the-way-under-the-cares-act/
https://www.closeupsblog.com/2020/04/not-entitled-to-a-paycheck-protection-program-loan-payroll-tax-relief-for-the-entertainment-industry-is-on-the-way-under-the-cares-act/#respondThu, 09 Apr 2020 16:21:52 +0000https://www.closeupsblog.com/?p=2750Continue Reading]]>The Coronavirus, Aid, Relief, and Economic Security Act (the CARES Act) provided the largest economic stimulus in American history in hopes of combating the economic effects of COVID-19. $349 billion was set aside for the Paycheck Protection Program (PPP), which provides loans, sometimes forgivable, to eligible small businesses. As we noted earlier, many production companies and other businesses in the entertainment industry will likely qualify to receive funds under the PPP.

But what if a company does not qualify for a PPP loan? For example, larger entities ultimately might be ineligible because of the 500-employee cap for eligible businesses. For these companies that cannot access PPP funds (or choose not to), the CARES Act provides alternative potential payroll tax relief.

The CARES Act creates a fully refundable payroll tax credit, the Employee Retention Credit (ERC), for eligible employers that do not receive a PPP loan. Companies entitled to an ERC will be able to use federal employment taxes, including withholdings, that such companies should have otherwise remitted to the IRS to fund “qualified wages” (defined below). Notably, if a company determines that its ERC will exceed qualified wages, it can request an advance of the credit from the Internal Revenue Service (IRS) through IRS Form 7200.

Employers eligible for the ERC are those carrying on a trade or business during calendar year 2020 that either (1) fully or partially suspend operations during any calendar quarter in 2020 because of government orders limiting commerce, travel, and group meetings due to the coronavirus; or (2) experience a significant decline in gross receipts during a calendar quarter. For eligible employers, the ERC will equal 50% of qualified wages paid after March 12, 2020 and before January 1, 2021. The maximum credit allowed for each employee is $5,000 (i.e., 50% of $10,000 in qualified wages paid to such employee).

As the production of motion pictures and television series has taken an indefinite hiatus under government orders, many production companies and other entities in the entertainment business will likely be eligible under (1) above. If not, the company may still qualify under the significant decline in gross receipts provision in (2) above. A period of “significant decline in gross receipts” begins in the first quarter in which an employer’s gross receipts for a calendar quarter are less than 50% of its gross receipts for such calendar quarter during 2019 and ends upon conclusion of the next calendar quarter for which the employer’s gross receipts for the quarter are greater than 80% of its gross receipts for the same calendar quarter during 2019.

The size of a company does not affect its eligibility for the ERC. However, the company’s number of full-time employees will impact the “qualified wages” calculation. Qualified wages for companies that averaged more than 100 full-time employees during 2019 are the wages paid to an employee for the time that the employee is not providing services because of either (1) or (2) above. Furthermore, for such companies, qualified wages for each employee are capped at what such employee would have earned for the 30-day period just before the economic hardship period began. However, if the company averaged 100 or fewer full-time employees during 2019, all wages paid during the economic hardship period will be qualified wages.

For more details, examples, and frequently asked questions related to the ERC, including its interplay with the payroll tax credits under the Families First Coronavirus Response Act, see the IRS website.

Last, the CARES Act allows an employer that does not have any PPP debt forgiven to defer payment of the employer’s share of payroll taxes on wages paid from March 27, 2020 through December 31, 2020. 50% of any amounts deferred will be due by December 31, 2021, with the other half coming due on December 31, 2022. Companies that ultimately do not have any PPP debt forgiveness should take note and consider deferring their employer share of payroll taxes.

Ultimately, the CARES Act will have far-reaching effects within the entertainment business. Companies that do not receive aid under the PPP provisions should be aware of other facets of the CARES Act that might provide much-needed help with payroll taxes during this tough period.

In addition to our Close-Ups blog coverage of COVID-19, Venable has published general client alerts regarding the multitude of benefits available to businesses and individuals beyond the PPP and the payroll provisions of the CARES Act; see here for a discussion of expanded unemployment benefits and initial checks; here for discussion of expanded eligibility for small business disaster loans; here for a discussion regarding newly required paid sick and family leave for small businesses and the associated payroll tax credits under the Families First Coronavirus Response Act; and here for a discussion of changes to rules related to uses of retirement funds and minimum distribution requirements.

Special thanks to Sam Djahanbani for contributing to this post.

]]>https://www.closeupsblog.com/2020/04/not-entitled-to-a-paycheck-protection-program-loan-payroll-tax-relief-for-the-entertainment-industry-is-on-the-way-under-the-cares-act/feed/0The Federal Government Provides Production Companies Some Much-Needed Income Tax Reliefhttps://www.closeupsblog.com/2020/04/the-federal-government-provides-production-companies-some-much-needed-income-tax-relief/
https://www.closeupsblog.com/2020/04/the-federal-government-provides-production-companies-some-much-needed-income-tax-relief/#respondMon, 06 Apr 2020 21:00:38 +0000https://www.closeupsblog.com/?p=2745Continue Reading]]>On March 27, Congress passed H.R. 748 – the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The entertainment industry, like the rest of the country, now eagerly awaits the coming aid. As production companies and other entities wade through the provisions of the bill to discover their share of the benefits, they might notice that some of the stimulus will arrive in the form of favorable changes to tax laws.

For example, one major piece of the CARES Act named the Paycheck Protection Program (the PPP) involves federally backed loans for qualifying “small” businesses that certify that the loan is necessary to support ongoing operations and will be used to retain workers and/or make defined overhead payments. The PPP further provides loan forgiveness for borrowed funds used to pay eight weeks of payroll and other qualified expenses. While businesses in the entertainment industry often do not conjure the words “small business” in our minds, many production companies, and other entities such as talent management firms, might ultimately qualify for these federally backed loans and subsequent forgiveness. For a deeper dive into the PPP provisions and who qualifies, see our earlier post.

Normally, debt forgiveness gives rise to taxable income. However, any loans forgiven through the PPP will be excluded from taxable income. Essentially, for a production company that qualifies, the federal government is not only offering free money to pay for certain expenses – it is offering tax-free money. It is unclear whether taxpayers can receive a double benefit by deducting expenses funded by a PPP forgiven loan. And, on a related note, states have not yet conformed to this exclusion, so the question remains whether any PPP debt forgiveness will give rise to taxable income in states such as California or New York. Production companies should stay tuned for the resolution of these issues.

Production entities also stand to benefit from modifications made by the CARES Act to the net operating loss and excess business loss rules, which will help temporarily alleviate potentially costly timing issues created by the Tax Cuts and Jobs Act and allow these companies to focus on the far-reaching effects of the coronavirus on their business.

Looking back, the Tax Cuts and Jobs Act of 2017 (TCJA) did not renew Internal Revenue Code Section 181, which allowed for the immediate expensing of qualified film and television production costs, generally up to the first $15 million incurred, which would have otherwise been capitalized and deducted over 10 years. The immediate expensing of costs often matched up with the recognition of income by these same entities, especially when a production company received payment of an advance royalty prior to production.

The TCJA essentially replaced Section 181 with bonus depreciation for such qualified film and television production costs and even removed the dollar limitation. But the accelerated cost recovery under these bonus rules came with a catch: the taxpayer must generally wait until the commercial release or initial broadcast of the content in order to take the deduction, as opposed to immediate expensing as incurred under Section 181.

In this new landscape, production companies, especially independent film and television production entities, may have recognized income in one year because of an advance royalty and then created net operating losses in the next year when their bonus deduction was allowed.

However, under the TCJA, net operating losses were not quite as desirable. Taxpayers could no longer carry back net operating losses arising after December 31, 2017, and a production company stuck in the situation described above could no longer simply apply the net operating loss from the second year backward to offset income from the first. The TCJA further limited the benefits of net operating loss carryforwards, as any net operating losses carried forward from that point on could offset only 80 percent of taxable income in a particular year. Last, the TCJA created the excess business loss rules, a new limitation for non-corporate taxpayers. As a result, the TCJA left production companies with a minefield of timing issues to navigate in hopes of avoiding the creation of net operating losses it could not even fully use; for a more detailed discussion of such timing issues, see “Entertaining Taxes” in Los Angeles Lawyer, Entertainment Edition.

But the CARES Act, along with the earlier enacted extension of Section 181 through December 31, 2020, will help alleviate some of these concerns for the time being. In a nutshell, the treacherous landscape described above will not come into effect until tax year 2021 (unless Congress extends Section 181).

Production entities can again invoke Section 181 for any qualified film and television costs incurred during tax years 2019 and 2020 (the election must be made with the tax return, with extension, so the ability to elect for 2018 is likely lost). Note that bonus depreciation is still likely available for any costs in excess of the Section 181 dollar threshold. Additionally, under the CARES Act, taxpayers can now carry back net operating losses created in tax years before 2021 to the prior five taxable years. Last, the 80 percent limitation on net operating losses and the excess business loss rules imposed by the TCJA are removed for tax years before 2021.

For now, the CARES Act generally eliminates the timing issue risk created by the TCJA for production entities. And for some of the production entities that could not avoid creating net operating losses, the CARES Act will allow them to carry back these losses in the way that they could have before the TCJA. However, the independent film and television production entities most affected should note that, once 2021 begins, the planning required to avoid these timing issues will likely be back in full force.